According to our research, sports professionals could be in line for a targeted clampdown by HMRC with new restrictions being placed on their ability to claim back tax, on the basis that their work partly constitutes a ‘personal enjoyment’ or ‘a hobby’.
Sports professionals who compete for prize money could find their applications to claim back VAT on the related expenditure challenged or rejected.
In most cases, competing in a sport for prize money is free of VAT. However, anyone competing professionally could be incurring expenditure on goods and services- such as training, equipment and publicity- and given that many will have wider business activities such as sponsorship deals, coaching, merchandising, etc, they are likely to be VAT registered and looking to re-claim the tax.
We are concerned that HMRC is increasingly arguing that enjoyment of a sports activity automatically equates to an element of ‘private use or enjoyment’, thereby justifying a restriction on the re-claiming of VAT on costs. They often fail to acknowledge the role competing professionally plays in raising the profile of an individual, and the extent to which virtually all their wider income-earning potential therefore relies on it.
We highlight that HMRC will tax prize money for Income Tax normally as ‘income earned in the course of a trade or profession’ yet deny this same classification when it comes to reclaiming VAT on associated expenditure. They argue that the Revenue’s actions are also at odds with EU VAT law, which would regard the overall operation as an ‘economic activity’ and one carried out ‘in the course of business’.
HMRC’s actions compare unfavorably with policies made to benefit superstar foreign athletes coming to the UK over the last few years. The Chancellor famously announced temporary Income Tax breaks for high-profile overseas competitors like Usain Bolt ahead of a series of major competitions held in the UK, including the Commonwealth games and Anniversary games.
Simon Newark, partner, comments: “HMRC’s targeting of the sports sector for supposed ‘non-business’ activity does not in any way stand up to scrutiny.”
“A professional sportsperson’s career and ability to generate wider earnings, even often after they formally retire from professional competition, is driven to a large extent by the profile and publicity generated by taking part in big competitions and events- it is quite clearly a business activity and should be treated so for tax purposes.”
“Whether or not you happen to enjoy what you do for a living should have absolutely no relevance when it comes to claiming VAT on expenditure.”
“This is just another example of the inconsistent and ‘pick and choose’ approach HMRC follows these days.”
HMRC’s assertions of non-business activity in the sporting sector have been repeatedly dismissed by the Courts in recent years, but that the potential costs and complications of launching an appeal often means those taxpayers targeted will be reluctant to do so.
Simon Newark adds: “HMRC’s approach is not supported by the law or the Courts but unfortunately, they are not required to fully justify their decisions unless the case goes to appeal.”
“The potential cost involved with fighting a decision is considerable and it is likely HMRC assume those targeted simply won’t have the energy to do so- opting instead to accept a settlement”
“HMRC may end up getting away with collecting additional revenue which may not have been due at all. Its energies would be better focused on identifying genuine and calculated evasion.”